Capital in the Twenty-First Century contains four remarkable achievements. First, in its scale and sweep it brings us back to the founders of political economy. Piketty himself sees economics “as a subdiscipline of the social sciences, alongside history, sociology, anthropology, and political science”. The result is a work of vast historical scope, grounded in exhaustive fact-based research, and suffused with literary references. It is both normative and political. Piketty rejects theorising ungrounded in data. He also insists that social scientists “must make choices and take stands in regard to specific institutions and policies, whether it be the social state, the tax system, or the public debt”.

Second, the book is built on a 15-year programme of empirical research conducted in conjunction with other scholars. Its result is a transformation of what we know about the evolution of income and wealth (which he calls capital) over the past three centuries in leading high-income countries. That makes it an enthralling economic, social and political history.

…In all, the two most striking conclusions are the rise of the “supermanager” in the US and the return of patrimonial capitalism in Europe.
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Third, Piketty uses simple economic models to explain what is going on. He notes, for example, that the huge rise in labour earnings at the top of US income distribution is overwhelmingly explained not by sports stars or entertainers but by increases in remuneration of managers. He argues that this is the result of the falls in marginal taxation, which have increased the incentive to bargain for higher pay, reinforced by changes in social norms. The alternative view – that the marginal productivity of top managers has exploded – is, he asserts, unpersuasive, partly because the marginal product of a manager is unmeasurable and partly because overall economic performance has not improved since the 1960s.
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Fourth, Piketty makes bold and obviously “unrealistic” policy recommendations. In particular, he calls for a return to far higher marginal tax rates on top incomes and a progressive global wealth tax. The case for the latter is that the reported incomes of the richest are far smaller than their true economic incomes (the amount they can consume without reducing their wealth). The rich may even take themselves outside any fiscal jurisdiction, so enjoying the fiscal position of aristocrats of pre-revolutionary France. This fact blunts one of the criticisms of the book’s reliance on pre-tax data: over time, the ability of individual countries to redistribute resources towards the middle and bottom of national income distributions might dwindle away to nothing.

Yet the book also has clear weaknesses. The most important is that it does not deal with why soaring inequality – while more than adequately demonstrated – matters. Essentially, Piketty simply assumes that it does.

One argument for inequality is that it is a spur to (or product of) innovation. The contrary evidence is clear: contemporary inequality and, above all, inherited wealth are unnecessary for this purpose. Another argument is that the product of just processes must be just. Yet even if the processes driving inequality were themselves just (which is doubtful), this is not the only principle of distributive justice. Another – to me more plausible – argument against Piketty’s is that inequality is less important in an economy that is now 20 times as productive as those of two centuries ago: even the poor enjoy goods and services unavailable to the richest a few decades ago.

For me the most convincing argument against the ongoing rise in economic inequality is that it is incompatible with true equality as citizens. If, as the ancient Athenians believed, participation in public life is a fundamental aspect of human self-realisation, huge inequalities cannot but destroy it.

In a society dominated by wealth, money will buy power. Inequality cannot be eliminated. It is inevitable and to a degree even desirable. But, as the Greeks argued, there needs to be moderation in all things. We are not seeing moderate rises in inequality. We should take notice.

About

NORMAN STRAUSS
Norman Strauss spent 20 years with Unilever and Lever Brothers in the UK and Canada. During 1976, he began advising the Conservative Party and its think-tank – the Centre for Policy Studies. In 1977 he correctly forecast the latent decline in trade union power. He detailed strategies for shadow ministers to test his hypothesis, which subsequently became fact and laid the foundations for the trade union reforms that have subsequently been embraced by the new Labour Party.

In 1979, Sir Keith Joseph requested his secondment from Unilever, to work as a civil servant in No 10 Downing Street. He has in-depth experience of how a multinational company works, how Whitehall works, how a political party works and, most importantly, how they can inter-relate. He has lectured at the Civil Service College on the need for reform in the future management of government and maintains a lifelong interest in radical policy-making.

He worked in No 10 Downing Street from 1979 to 1982 as a member of Mrs Thatcher’s first Policy Unit. His wide-ranging experience in strategic leadership is unique, as he spent some years devising policy for and advising the then Prime Minister, Cabinet Ministers and the No 10 Policy Unit.

In 1982 he designed and named the first ever Strategic Leadership Programme, to be run at Templeton College, Oxford. It celebrated its 30th programme in November 1997. It was taken to Australia in 1989 where he regularly lectured. He has been an Associate Fellow of Templeton College and both helped to design and speak on many tailored programmes, for such companies as IBM, P&O, Royal Mail and BT.

He is also a personal adviser and consultant on leadership, strategy, policy, innovation and culture change. He quite deliberately splits his time between the practical and the theoretical so that he can evolve and prove new MetaTools® and leading edge techniques for a complex and uncertain world. Much of this work is incorporated into the new Thinkubator® and Growth Tank® ( a growth-seeking think-tank) services for blue-chip multinationals and public services, offered by Corporate Positioning Services ( C-P-S ) where he is now chairman.

As a Governor of Imperial College, London University, from 1981 to 1989, he took a special interest in how scientific and technological discoveries generate new ventures. He has been a director of Imperial Software Technology, a joint University and Industry collaborative venture.

In 1990, he was a co-founder of Intellectual R & D – with Sir Douglas Hague, Peter Hennessy and Martin Jacques – which ran the annual Stimulus 2000 series of scenario-scoping programmes and advises on change management at the leading edge, where complex systems leadership is the norm. Their advice is available to all Thinkubator® clients. Both Martin Jacques and Sir Douglas Hague, who is president of C-P-S, are trustees of the DEMOS political think-tank and sit on its Advisory Council.

At present he is concentrating most of his time on developing new approaches to Corporate, Institutional and Governmental Strategic Leadership and the required competencies, structures and approaches for achieving success in turbulent times.

DR. LILLY EVANS

Lilly and Norman have worked together since 1994 on various aspects of dynamic systems leadership development. She is an internationally known business transformation consultant, change expert, strategic management and marketing adviser, lecturer, mentor and coach to tomorrow’s leaders of today’s companies.

A selection of Lilly’s assignments:

• Guided transformation of implementation consultancy into desirable takeover target for USA rival with client CEO retaining European Head position.

• Engaging initially unwilling clients in open group conversations leading to breakthrough actions.

• Bringing new approach to business integration in transitional situations in EMEA through application of ICT and HR approaches that accelerate building commitment and taking responsibility by stakeholders.